Even public-private projects under CAG lens

New Delhi: Concerned over reports that private firms developing infrastructure projects may ha-ve been given undue benefits, the comptroller and auditor general, or CAG, India’s federal auditor, will now scrutinize agreements under which the government hands over these projects to the private sector.

For auditing such public-private partnership, or PPP, projects, CAG has finalized a system which will be implemented soon, said a senior government official who didn’t wish to be named.

“We were earlier finding it difficult to audit these projects as they don’t follow the conventions of government account keeping in all spheres of activity, from manpower recruitment to storekeeping,” the official said. “But now we have arrived at a system by which we can audit these projects.”

CAG will check the concession agreements—signed between private firms and the government bodies that administer these projects—to see whether private players have been given benefits “that are beyond the norms”, he added.

The PPP model, by which private firms build and operate projects for a specified period of time, has become the de facto model of infrastructure financing in many sectors such as roads that were earlier predominantly government-financed.

Many huge infrastructure projects, such as the modernization of the Indira Gandhi airport in the Capital, are being developed and operated by private sector companies.

Disputes have aften revolved around the extent of profits or ways in which private firms may derive revenues from th-ese infrastructure concessions.

Media reports last year on the funding pattern for a hospitality district at the airport led to the ministry of civil aviation and the Airports Authority of India stopping the GMR Group, which operates the airport, from going ahead with a plan to raise at least Rs2,835 crore as long-term refundable deposits by leasing some 40 acres of land for the hospitality district.

State and Central governments have together so far approved 234 PPP infrastructure projects worth an estimated Rs1.29 trillion, according to finance ministry data, with total government subsidies touching Rs8,294 crore.

CAG is vested with the authority to audit state and Central government finances as well as government firms. The agency then tables the findings of its audit in Parliament.

“We will focus on those PPPs where the government has a majority stake,” the official added.

Recent controversies in infrastructure projects have caused uproar with questions being asked whether companies executing PPP projects have been given undue benefits in concession agreements.

Contractors, on their part, say oversight isn’t the answer. The president of trade body National Highway Builders Federation, Brahm Dutt, said private contractors, on the contrary, need more support from the government in PPP projects.

“There is sufficient oversight in all these (PPP) projects. The reason why some projects get into trouble is because the cost escalation is not provided for in the concession agreements. The private companies need more empathy from the government,” he said.

Some findings of the CAG, however, are often startling.

For example, a 2005 audit of 32 road stretches tendered by the National Highways Authority of India found that bad quality controls and lack of standardized bid procedures and documents resulted in inordinate delays and cost escalation, with financial implications to the tune of Rs1,500 crore.

That audit also found that the highways regulator took up contracts for 20 works valued at Rs779 crore without detailed project reports, leading to variations ranging from 12.26% to 86.82% between the awarded cost and executed cost in nine stretches. It isn’t, however, clear if any of these stretches were constructed under the PPP model.